A market with new rules: what WTO membership could bring to Uzbekistan?

Uzbekistan is rapidly progressing toward its goal of joining the World Trade Organization (WTO) after an extended pause in negotiations. President Shavkat Mirziyoyev has highlighted that this objective is a vital component of the country’s reforms aimed at spurring economic growth, integrating into the global marketplace, and attracting new investments. Since reigniting its WTO accession journey in 2017, Uzbek authorities have been fine-tuning legislation, engaging with international experts, and implementing essential reforms. The country hopes to gain full membership in the global trading system by 2026, although it is likely to encounter several significant challenges along the way. POLITIK Central Asia has taken a closer look at these hurdles.

A process spanning three decades

The World Trade Organization (WTO), established in December 1994, succeeded the General Agreement on Tariffs and Trade (GATT), signed in October 1947. Currently, the WTO has 166 member countries that account for approximately 98% of global trade in goods and services. The organization’s primary goal is to facilitate free and predictable trade among its members while eliminating and preventing discriminatory trade practices that can distort competition and negatively impact global trade dynamics.

It’s important to note that Uzbekistan applied for WTO membership shortly after its founding, with its first round of negotiations in 1999. However, due to Uzbekistan’s protectionist economic policies, the accession process moved slowly during the first decade. As a result, after three multilateral meetings with WTO members, the negotiations effectively stalled. It was in 2017-2019 that Uzbekistan resumed significant efforts toward integration. A pivotal moment in this process was the fourth meeting of the joint working group on Uzbekistan’s accession to the WTO, which took place online in July 2020, marking a significant development after 15 years of stagnation, even during the height of the pandemic.

 “Unconventional“ negotiations

A country’s accession to the World Trade Organization (WTO) involves bilateral and multilateral negotiations, each with unique characteristics and objectives.

Multilateral negotiations occur within the framework of a WTO working group that includes all countries interested in accessing the Uzbek market, totaling 47 nations. During joint meetings, these countries review Uzbekistan’s legislative framework and provide recommendations on how to align it with WTO norms.

It is important to note that progress has been slow even after the process was restarted in 2020. Tashkent often responded to inquiries with significant delays. The fifth meeting in this series occurred two years after the fourth, in June 2022.

To accelerate progress, the Presidential Administration appointed a special representative for WTO matters, assigning Azizbek Urunov to the role. This strategy seems to have paid off: by April 2023, Uzbekistan had concluded negotiations with only two countries—Georgia and Moldova—but by November 2024, it had successfully negotiated with 21 countries, including the United States, and signed market access protocols with 14 of them.

Umida Khaknazar, an international trade law expert and a doctoral student at the Institute of International Trade at the University of Bern, told POLITIK Central Asia that these meetings are “not quite traditional negotiations.” The interested nations seek access to the Uzbek market for specific goods and services, while Uzbekistan aims to safeguard its interests and protect certain sectors of its economy from foreign competition.

Khaknazar elaborated, “If Uzbekistan has agreed with one country to keep higher duties on a product but hasn’t reached the same agreement with another country, those concessions will apply universally. Ultimately, the level of duties where the biggest concessions have been made will be set, and all WTO member countries will need to comply with that.”

On the flip side, bilateral negotiations are conducted behind closed doors. Once Uzbekistan concludes these negotiations with all interested countries and signs the necessary protocols, these agreements will be presented to the WTO secretariat. The most favorable proposals for WTO member countries will then be chosen, forming Uzbekistan’s commitments related to tariffs and market access for services.

Why is Uzbekistan pursuing WTO membership?

In a recent meeting with entrepreneurs, Uzbekistan’s President Shavkat Mirziyoyev underscored that joining the World Trade Organization (WTO) is a strategic and forward-thinking decision. He pointed out that this choice is vital for ongoing reforms, adding that without it, “our opportunities will be limited.”

Nishanbay Sirajiddinov, a Doctor of Economics and Professor at the University of World Economy and Diplomacy, highlighted several key advantages of WTO membership at the request of POLITIK Central Asia.

One major benefit is the automatic acquisition of “most favored nation” status from all member states, significantly boosting Uzbekistan’s export potential. Furthermore, joining the WTO is expected to reduce the levels of import protectionism. High protectionism can distort goods and services’ “relative prices” through customs duties, quotas, and subsidies. Such measures make imported goods pricier, creating an unfair edge for domestic producers and limiting their motivation to boost competitiveness by improving quality, cutting costs, and expanding their product range.

Sirajiddinov explained that this issue leads to an inefficient allocation of resources and stunts long-term economic growth. When investments are channeled into sectors where the country lacks a comparative advantage, they often become costlier than investments in other nations.

Moreover, accession to the WTO will likely lessen the local business community’s push for more protectionist policies, as the country would no longer have the power to change its trade regime unilaterally.

WTO membership also fosters economic openness and makes the country’s economic policies more predictable. This improved environment will likely attract foreign investment and enhance the overall investment climate.

However, Sirajiddinov pointed out potential short- and medium-term structural challenges that could arise from joining the WTO. He noted that certain domestic industries may struggle to compete if import barriers are significantly lowered or specific tax breaks are removed. For example, reducing import duties from 60% to 15% would make imported goods 45% cheaper, increasing competitive pressure on local producers. The more protected an industry currently is, the greater the impact of this transition could be. Consequently, companies of all sizes, particularly larger ones, may need to adapt to these new conditions, which could result in shifts in their operational focus, production levels, or workforce sizes.

Despite these challenges, Sirajiddinov remains optimistic about the country’s long-term benefits. He believes that resources will be used more efficiently, enterprises will invest in areas with a competitive edge, and economic policy will become clearer and more stable.

Source: WTO.ORG

Saida Mirziyoyeva’s role

Nozima Davletova, the Head of the Department of Information and Analytical Support for Foreign Policy and the Expansion of Foreign Economic Cooperation within the Department of External Relations at the Presidential Administration, shared with POLITIK Central Asia that Saida Mirziyoyeva, daughter and assistant to President Shavkat Mirziyoyev of Uzbekistan, plays a pivotal role in fostering international relations and facilitating effective negotiation processes.

“Her efforts have significantly propelled discussions and strengthened ties with key players, including the United States and the EU. Notably, U.S. Trade Representative Katherine Tai, the chief trade adviser to the U.S. House of Representatives Ways and Means Committee, made her inaugural visit to Uzbekistan. Additionally, trust-based relations have been established with WTO Director-General Ngozi Okonjo-Iweala, marking her first official visit to a non-member country,” Davletova remarked.

Saida Mirziyoyeva is responsible for overseeing the interdepartmental commission that handles work with the World Trade Organization and the negotiating group focused on the country’s accession to the WTO, gathering information and updates from them regarding the current state of negotiations.

In June, the President’s aide stated that joining the WTO would not be an end in itself for Uzbekistan. She acknowledged that no country can simulate change without genuine reforms or substitute structural adjustments with high-level diplomacy. “Membership in the world’s largest trade organization is an incentive to complete profound economic reforms and establish a level playing field in the market,” said Mirziyoyeva.

Photo: POLITIK

What has been achieved so far

The degree to which a country’s economy is anchored in market principles and mechanisms plays a crucial role in determining the economic reforms necessary for it to join the WTO. As noted by Umida Khaknazar, Uzbekistan must revisit several long-standing economic policies, including import substitution, localization, export subsidies, and monopolistic practices upheld through restrictive import measures, to satisfy WTO requirements.

President Mirziyoyev is driving this transition by issuing various decrees to align national legislation with WTO standards. For example, starting July 1, 2023, the creation of regulatory legal acts that don’t comply with WTO rules will be prohibited. Additionally, from 2025 onwards, various subsidies and incentives related to exports and non-viable tax and customs benefits will be phased out, and fees will be adjusted.

Plans for 2025-2026 also include putting an end to Uzbektelecom’s monopoly on the external Internet channel and revoking the exclusive procurement rights held by certain state-owned enterprises for ferrous and non-ferrous metals, the export of chemical products, the purchase of natural gas, and electricity import-export activities. Moreover, beginning in July 2026, preferences for domestic manufacturers in government procurement and price advantages for local electrical equipment will be gradually reduced.

Not a silver bullet

And yet, it should be recognized that joining the WTO does not guarantee economic growth, but creates opportunities to achieve this goal.

“This is a tool, and the efficacy of this tool highly depends on how thoroughly we address the relevant issues and how well we implement these recommendations. Global experience clearly indicates a positive relationship between economic openness and growth. While it’s difficult to pinpoint the exact contribution of WTO membership to Kyrgyzstan’s economic growth, one thing is clear: without joining the WTO in 1998, the rate of economic growth and overall well-being in the country would likely have been significantly lower,” stated Nishanbay Sirajiddinov in an interview with POLITIK Central Asia.

Umida Khaknazar echoes this sentiment, emphasizing that for countries with smaller economies, merely becoming a WTO member isn’t enough; they must actively leverage this membership to foster a competitive environment and a favorable investment climate, as financial flows won’t materialize without these conditions.

“Kazakhstan and Kyrgyzstan have indeed gained advantages from joining the WTO,” the expert remarked. “Take the example of automobiles: the absence of high import duties allowed the middle class to flourish, enabling residents to purchase imported cars or agricultural machinery, often at a fraction of the cost compared to Uzbekistan. This access to affordable transportation has a ripple effect across the entire economy. Small business owners, farmers, and other entrepreneurs could transport their goods at a lower cost, significantly boosting their development.”

Fears about the WTO

Trade liberalization often sparks disagreements within the domestic market. Manufacturers focused on the domestic market and protected from import competition oppose the WTO, as it opens the market to competition and requires improvements in product quality and cost reductions.

Experts worry that joining the WTO could lead to a situation where imports outpace exports, resulting in a balance of payments deficit, especially since Uzbekistan may not yet be prepared to export competitive products on a large scale. However, as Nishanbay Sirajiddinov noted, a freely determined exchange rate can help stabilize the currency market. A trade deficit and balance of payments issues typically arise not from an influx of imports due to liberalization but from state budget deficits and insufficient savings to match private sector investments.

Additionally, WTO membership does not fully eliminate the possibility of state support. While import duties may be reduced, they will still remain, and certain sectors, such as sustainable agriculture, may receive subsidies to promote food security and increase the production of natural food products.

“Solving the problem by restricting imports only postpones the solution to the problem, distorts prices, and negatively affects long-term welfare. Instead, we should analyze and stimulate exports, improve conditions for production, and attract investment,” Sirajiddinov emphasized.

WTO first, not the EAEU

Although many Russian observers are confident that by joining the World Trade Organization, Uzbekistan is demonstrating its reluctance to join the Eurasian Economic Union, POLITIK Central Asia’s interviewers are sure this is not the case. Nevertheless, joining the WTO is a priority, as it will allow Uzbekistan to maintain lower import tariffs on essential goods.

Photo: Alexander Kazakov / RIA Novosti

“When a country becomes part of the EAEU, it adopts its trade regime. This means we would enjoy free trade with other union members but also have to implement uniform EAEU tariffs for trade with external countries. How are these tariffs determined? Predominantly by Russia’s import tariffs. This means we wouldn’t prioritize our interests,” explained Nishanbay Sirajiddinov.

Umida Khaknazar agrees that while the WTO and EAEU provide different frameworks, they can coexist. Unlike the EAEU, the WTO offers a global platform for international trade, where countries—regardless of size or economic status—adhere to standard regulations and can resolve disputes amongst themselves. Furthermore, WTO members retain the freedom to form preferential trade agreements with third countries, a flexibility not available to EAEU members who cannot adopt an independent trade policy. 

Meeting the deadline

Tashkent aims to become a WTO member by 2026. Sirajiddinov believes this goal is attainable, provided Uzbekistan continues its proactive negotiations. Progress in the early stages is expected to quicken, with remaining discussions potentially wrapping up in the next two years. Umida Khaknazar emphasizes that the political will of Uzbekistan’s leadership is crucial for speeding up the accession process. This journey will demand reforms and may require some unpopular decisions to move away from outdated systems, which could encounter pushback from certain groups. Joining the WTO necessitates expertise, new legislation, collaboration with parliament and government agencies, and support from international donors. Maintaining consistency is also vital—every step taken must advance towards this goal without reverting to previous methods.